Frequent fire sales of tens of billions in assets as small and medium-sized banks accelerate "cutting off the tail to survive"

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After entering the fourth quarter, an increasing number of small and medium-sized banks have begun to accelerate the sale of their risk assets.

On October 10, Bohai Bank announced its plan to publicly list through the property rights exchange, transferring 69.833 billion yuan of debt assets in batches.

Bohai Bank disclosed that among this batch of transferred debt, there is a principal of 49.937 billion yuan and about 20 billion yuan in interest, penalty interest, etc. The preliminary minimum price is set at 48.883 billion yuan, approximately equivalent to a 30% discount off the total debt.

According to incomplete statistics, within one year, Bohai Bank has successively transferred 5.667 billion yuan and 28.965 billion yuan in debt assets for 3.967 billion and 20.724 billion yuan respectively; plus the current plan to sell 69.833 billion yuan in debt, the bank’s cumulative disposal of problematic assets in three rounds has exceeded 100 billion yuan.

Almost simultaneously, Guangzhou Rural Commercial Bank announced it will transfer 18.928 billion yuan in credit assets through the property rights exchange; among them, the principal is 14.978 billion yuan, with 3.95 billion yuan in interest and penalty interest. The preliminary base price is 12.2 billion yuan, which is about a 35% discount off the total debt.

Xinfeng noted that this bank also sold 14.592 billion yuan of debt at a 30% discount at the end of last year. The total value of credit assets offloaded since 2023 has exceeded 45 billion yuan.

The frequent sale of risk assets exposes that the asset quality pressures faced by some small and medium-sized banks are still ongoing.

By the end of the second quarter, Bohai Bank’s non-performing loan ratio was 1.81%, 0.59 percentage points higher than the average of joint-stock banks, putting it at a relatively poor level within the industry; its 11.24% capital adequacy ratio ranks last among listed joint-stock banks.

The batch of debt being transferred this time includes 174 creditors, of which more than half are long-term assets with an account age of over five years;

The bank admits that these assets occupy high amounts of capital and are illiquid. Clearing them out at a discount in one go is expected to improve asset quality, save capital occupied by risky assets, improve the capital adequacy ratio, and further enhance overall competitiveness.

Based on 2024 year-end data estimation, successful transaction of the debt package is expected to bring Bohai Bank a positive financial impact of around 573 million yuan.

Guangzhou Rural Commercial Bank is in a similar situation to Bohai Bank.

By the end of the second quarter, Guangzhou Rural Commercial Bank’s non-performing loan ratio was 1.98%. While this is 0.79 percentage points better than the average of rural commercial banks, it is still at a mid-to-lower range among H-share listed banks.

By industry category, the debts being transferred this time are mainly in the areas of leasing and business services, real estate, and wholesale and retail, accounting for 38.78%, 20.46%, and 16.27% respectively;

If Guangzhou Rural Commercial Bank successfully sells the assets, the funds will be used for general operations. The bank believes this move will effectively reduce the non-performing loan ratio and provisioning amount, thereby improving efficiency.

Under operational pressure, proactively “stopping the bleeding” by quickly stripping out risky assets also demonstrates the shift of small and medium-sized banks from passive acceptance to proactive management in times of adversity.

On one hand, discount sales may erode current profits, but can recover cash, improve liquidity, create room for new business, and avoid ongoing losses caused by risky assets;

After all, from 2023 to 2024, Bohai Bank and Guangzhou Rural Commercial Bank incurred pre-tax net losses of 238 million yuan and 1.569 billion yuan, respectively, due to the sale of such assets.

On the other hand, it can also move risk assets off the balance sheet, reduce the capital occupied after risk-weighting the assets, and improve the capital adequacy ratio.

However, in the long run, whether such small and medium-sized banks—represented by Bohai Bank and Guangzhou Rural Commercial Bank—can achieve sustainable development still depends on whether they can seize the funds and time gained in the risk-resolution process.

There remains a long way to go from “stopping the bleeding” to “generating blood”.

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